Inequality in India

By 2011 the BRIC economies had some of the highest rates of income inequality adjusted to the Human Development Index among developing nations.  At the same time, the BRIC countries had consistently had the highest GNP growth versus the previous 10 years among developing nations.  How is it that there is not a parallel growth of the Human Development of its citizens?  The answer and one of the biggest challenges for the BRIC countries is the fact that a large amount of the GNP is distributed among small elites that control their market economies.

Economists and investors such as O’Neill, Krugman and others largely emphasize the expected growth of the BRIC economies as indicators of where to invest their money.  Unfortunately, they have not paid the same interest to what many other economists consider important: the human development of the people.  Fortunately, there are still some economists who since the decade of 1970 paid a lot of attention to the issues of freedom and equality.  Economists leaded by Milton Friedman, the Economics Nobel Prize of 1976, argued that economic policies should be focused in the freedom of its citizens as a primary value.  To them, stressing equality per se could lead to economic inefficiency as well as it would put in risk Freedom itself.  However, the same economist argued that it was necessary for developing economies that the government took a central role in poverty alleviation in order to keep the pace with the economic growth of its economies.  Unfortunately, this poverty alleviation is not being done in the BRIC countries and the economic difference between the poorest and the richest continues to grow. Since the 60s, a large group of economists emphasized the negative effects of not paying attention to a free and equal development in emerging markets; economists like Friedman and Hayek wrote a lot in this regard and even recently Elinor Ostrom’s ideas, who won the Nobel Prize in Economics in 2009, are still not listened by those who have forgotten the importance of good governance economic policies.

India is the country in which this income inequality versus human development is more pronounced.  Currently, India occupies the position #93 with an IHDI of 0.392 and the country has descended in the rank many positions since the last decade.  Inequality in the earnings among Indians has doubled over the last two decades, making it one of the worst performers among developing economies.  Why? This is again the result of the failed attempts by the Indian government to combat corruption, bad administration and under-payments and also of the unawareness of foreign investors.

The fact that foreign investors have no interest in securing the welfare of the Indian people is a problem.  To them, the investment opportunities of this specific BRIC country are of value until they find a better economy to move their money to.  However, the real stakeholders are not the foreign investors but the Indian Government and its groups of interest who should aim to secure the welfare of all of its citizens now that they have a chance.  While the growth of this economies will continue the effect it will have in such unequal societies will result in some of the worst rates of poverty and hunger ever seen in history. By 2025 India will be the most populous country in the world but also, it will have 268 million people (20.3%) living still with less than US$1.25 a day as reported by economists in the World Bank. The Indian government should go aligned with the current trade liberalization in order to support higher productivity in the private sector and to exploit its comparative advantage of having a labor-intensive industry to foster the production of goods and services.

Drugs: A Legal Market is not a Free Market

English: Flower of a Opium Poppy
Image via Wikipedia

A couple days ago, Otto Perez Molina, recently elected as President of Guatemala; announced that he was willing to decriminalize the commercialization of drugs. According to U.S. authorities, Guatemala has became the transshipment point for more than 75 percent of the cocaine smuggled into the United States since 2005.  Along with this, the Opium poppy cultivation is already done in large parts of the countryside making the production of Guatemalan heroin a greater and the newest worry for the United States. The country’s elites are already part of this business and the paranoia of crimes that used be a remembrance from Colombia‘s 1990s history seems to be repeating in these Central American countries.

What impresses me the most now is how this news has started spreading around my Facebook contacts (mostly libertarians and liberals). Both groups seem to be happy to hear this announcement by Guatemala’s President.  However, both groups applaud the news for different reasons.  The legalization/decriminalization of drugs will not be the panacea we all are hoping for.  Specially not if started by any of the Central American governments.  The reasons are many and I will begin by listing some of them to open the discussion,

  • Corruption, lax enforcement, and judicial impunity levels in Central America are among the highest of the world.
  • Drug lords and their new and powerful money have been mentioned by many analysts to be already part of the politic and economic elites of these countries.
  • The Central American countries in which this drugs are produced and transported are inhabited by a large majority of people living in the lowest leves of Human Development.
  • If legalized, the trade, production and commercialization of drugs (cocaine and heroine mainly) will be regulated by these governments.
  • Without any doubt, this regulations will enable and create legalized monopolies ruled with the partnership of previous drug lords and government officials.
  • It has not been advocated by any of the political leaders which road would take the legalization of drugs. This is important, because under current legalization procedures it is not the same to get the approval for a new medicine in the market as to get the approval for a new liquor, a new energizing drink or of a new edible product.

The history of the legalization (production, trade and commercialization) of items considered by many as drugs and for others as commodities has shown that for as long as a government elite hold the power to legalize it; it was in their power to take the first steps into the acquisition of a monopoly of its trade and production.

If legalized, the emergence of a coercive monopoly would be inevitable. As noted by Ayn Rand, the governments and their partners in these coercive monopolies “will be able of setting the initial prices and production policies independently of the market, with immunity from competition, from the law of supply and demand. An economy dominated by such monopolies would be rigid and stagnant.”

If we support the complete and absolute free trade of all commodities it is necessary that we do not grant to government an intrinsic right to regulate it.  No compromise should ever be done with a government that requires regulation in order to give us legalization.  Legalization should result in freedom and not in regulation.  The drug trade should be opened to businessmen and entrepreneurs in the freest way possible. The freest way is that of requiring the traders to inform their buyers about all the necessary information about the products they are offering.

We may be taking part in a historical moment in which the most important thing are principles.  Let us remember that one of the most valuable principles of trade is Freedom; and that one of the most valuable principles of government is to seek that i will Protect Individual Rights and not to regulate their lives.

Note: To understand more which are the principles that really matter in this discussion, I invite you to take a look to the video titled: The Drug War in Guatemala: A Conversation with Giancarlo Ibarguen.

PPs, from Spain to Guatemala

Belisaire demandant l'aumone Jacques-Louis de ...

The PP’s have just won the executive elections in two very distinct cultural, political and economical contexts in Spain and in Guatemala.

The PP’s (The Partido Popular in Spain and the Partido Patriotain Guatemala) implemented a ochlocratic discourse with which they won the support of the majorities. In Spain, the Partido Popular discourse appealed to the masses by claiming that the Socialist Party (PSOE) had failed to be responsible in managing the economic crisis and that the solution was a paternalistic leader like Mariano Rajoy who was to bring order.   In Spain, the  current economic and social crisis raised the unemployment rate from 8.1% in 2006 to a historical level of 20% by 2010 an 21.5% by September, 2011. More so, the increasing financial crisis in the region continued to  debilitate the government of José Luis Rodríguez Zapatero (PSOE) whose premiership policies of raising taxes and the lack of a coherent economic plan were ineffective to tackle unemployment and reducing the government deficits from two digit numbers.

In Guatemala, the same ochlocratic discourse won the support of the masses by criticizing the Party Unión de Esperanza Nacional (UNE) and its irresponsibility to stop the organized crime elites that control most of the government’s structures (corruption with money from organized crime has captured the local, judicial, legislative and executive powers). Their campaign also identified in the figure of Otto Perez Molina (known as Mano Dura ‘hard fist’) the leader that was going to stop the advance of corruption and organized crime.

Independently of the achievements that either of these political programs will have in their countries; it is evident that the paternalist and populist discourse is again an effective tool to manipulate the masses in moments of economic and social crisis. Unfortunately, these discourses implemented by the “Conservative/Right” movements in their respective contexts have historically failed to solve the problems they aimed to fix. The long-term effects of these discourses have led to an increased disenchantment with the economic elites (usually linked to right movements) and to the reelection of leftist movements after the end of the “conservative/rightist” terms.

The problem with these discourses is linked to one single philosophical concept. That is the concept of Collectivism that has caused for several centuries so much poverty, hunger and suffering around the globe,

“The political expression of altruism is collectivism or statism, which holds that man’s life and work belong to the state—to society, to the group, the gang, the race, the nation—and that the state may dispose of him in any way it pleases for the sake of whatever it deems to be its own tribal, collective good.” Ayn Rand

Let us hope that Spain and Guatemala will find a right philosophy sooner than later.

Occupying Wall Street for the wrong reasons

The group “The 99 percenters” (also known as the 99%) assembled in Wall Street to protest against the corporations of the United States that have benefited from the privileges granted from government through lobbying. They say to be tired of the social and economic inequality in their country.  Somehow, they consider Corporations to be the one’s to blame for this inequalities.

Now, lets hold on for a second and consider what are they protesting against and who’s to blame. Then, lets try to explain what and whom should be really blamed before continuing this protests.

What they say to be protesting against:

What are the really protesting against:

  • Social inequality: Is in fact the cultural and educational differences of those who know more than others.
  • Economic inequality: Is the result of those men who earn a salary that is higher than others; or of those who own a business and make more earnings than others.
  • Lobbying: Is the act of influencing decisions made by officials in the government in favor of some industries, unions, or groups of society.
  • Corporate greed: Is not to be confused with the profit that an entrepreneur earns in his ventures.  Greed should better be understood as the result of living and satisfying one’s wants wants by seizing and consuming the products of the labor of others. Corporations that profit with the privileges granted by government are the only ones to be attacked and denounced; not those entrepreneurs who took risks and invest their savings.

These “99 percenters” are confused.  They think that Corporations are to be blamed for the economic and financial crisis that started in 2008 in the U.S.  However, it is their government and their bureaucrats that through Congress ad the FED enabled for the crisis to happen.  This protests should have been taking place in front of the White House and the Senate instead of Wall Street. (Check this video of some of the protests in Wall Street agains the FED)

It is not all the rich and wealthy who benefit from government privileges.  The ones who did are to be blamed. But more so, the one’s to be blamed and taken to justice are the the government officials who created the legislation that ensures that corruption and impunity continue without being punished.

As Fréderic Bastiat, the journalist and philosopher from the 19th. Century, once said:

The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense.

How has this perversion of the law been accomplished? And what have been the results?

The law has been perverted by the influence of two entirely different causes: stupid greed and false philanthropy. (…)

But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.

I invite you to continue reading Bastiat’s wonderful book “The Law” online. I am myself, have read it for dozens of times and consider it one of the most enlightening works ever written. Spanish versión: La ley por Frédéric Bastiat [PDF¨]

Syria on the road to chaos?

Last night I attended a lecture titled “Syria on the Road to Democracy or Chaos?” by Ph.D. Candidate Mohammad Maghout hosted by the Institute of Oriental Studies in Leipzig University.  The lecture was an overview of the last 20 years of political oppression and autocrat government in Syria.  The speaker emphasized how Bashar al-Asad was an exact continuation of the government his father, Hafiz al-Asad held in Syria from 1970 to 2001.

Maghout explained that in Syria the government was not only feared but that a cult of reverence toward the al-Asad regime had being built.  He explained that in the 40 years of autocratic regime the regime had amassed its power upon a pyramidal network of tribal, religious and economic leaders that belonged to different ethnic groups and tribes.  In Maghout’s reasoning, it was these ethnic and tribal differences one of the key elements that allowed for the Syrian government to control the population while confronting them every time political tensions appeared.  Indeed, these confrontations were evident after the the 2011 Syrian uprising (from January 26th to March 15th of 2011) and as Salman Shaikh wrote yesterday in the NYTimes (Preventing a Syrian Civil War. NYT. October 12th, 2011), it is these ethnic confrontations and sectarianism that could bring Syria into chaos.

One thing was left without a clear answer from Maghout’s lecture.  It was the question on “why didn’t Syrians react to all the lies, political oppression and corruption of the al-Asad regime previously”.  Maghout explained that Syrians were not only divided in ethnic groups that conflicted within their understanding on “Who Syrians really are”, but that it had passed already too many years of fear for government’s power that brought the population to fear political activity and the use of freedom of speech to protest against government.  While this is true, I consider it not to be sufficient reason.

It may be necessary to understand which was the role (or lack of it) of the economic leaders during the unrest.  I am sure that understanding how crony capitalism works could bring some interesting tools to understand what is the effect of privileges in a society. And as such, could be a valuable tool to understand how can the results of these social movements be differentiated.  The participation of crony capitalists protecting corrupt governments and the participation of entrepreneurs is psycho-epistemological different because of the goals they aim to achieve.  It is entrepreneurs who most often support (economically and logistically) social movements that demand freedom of speech, equality of rights, an end to corruption and the respect of private property.

Photograph: AFP/Getty Images